The Fair Debt Collection Practices Act (FDCPA) prohibits a debt collector from disclosing information regarding the debt to third parties in the debtor's home (except the debtor's spouse). It also requires a debt collector to disclose to the debtor in the first communication and in every subsequent communication, whether written or oral, that the communication is from a debt collector and is an attempt to collect a debt. See generally 15 USC sections 1692c and 1692e.
When read together, these requirements make it very difficult, if not impossible, to leave manual or automated messages on debtor voicemail systems or answering machines. If the debt collector leaves a message on a debtor's answering machine indicating its identity as a debt collector and the message is retrieved or overheard by a third party in the household, the debt collector has violated the first prohibition. If it leaves the message without the disclosure that the communication from the debt collector, it violates the second prohibition.
Another Federal Circuit weighed in on this predicament last week. The Eleventh Circuit (the Appeals Court residing over Florida's District Courts) held in Edwards v. Niagara Credit Solutions, Inc. (No. 08-17006, Decided October 14, 2009) that while it may prove difficult for a debt collector to balance these prohibitions, there is no guaranteed right to leave messages under the FDCPA, and if a debt collector believes these provisions read together make it impossible to leave messages without violating the FDCPA, it should not leave messages at all.
This is not a novel decision. The seminal case emerged from the Southern District of New York in 2006, Foti v. NCO Fin. Sys., 424 F.Supp.2d 643 (S.D.N.Y. 2006). It confirmed that both disclosing the identity as a debt collector and failing to disclose the identity as a debt collector on a machine or voicemail (whether through an automated call or a manual one) constitute an FDCPA violation. Florida District Courts have agreed. See Berg v. Merchant's Ass'n Collection Division, Inc., 586 F.Supp.2d 1336 (S.D. Fla. 2008); Belin v. Litton Loan Servicing, LP, 2006 WL 1992410 (M.D. Fla. 2006). The judges in these cases heard (and dismissed) many different arguments regarding Foti's reading of the FDCPA, from arguments that it is against public policy in general to arguments that it is an unconstitutional restriction on free commercial speech.
But this most recent installment discusses the situation from the perspective of the bona fide error defense, which we have detailed in prior posts and discussed on the Debt Collection Regulations Forum on LinkedIn (username and password required). Niagara argued that it's policy to not disclose its identity was a decision it made so as to avoid violation of the provision prohibiting disclosure to a third party. It had already conceded that it in fact violated the FDCPA, and I think at this point all authority indicates that it did. Thus, the only question before the Court was whether a debt collector can avoid liability under the bona fide error defense when it intentionally violates one provision of the FDCPA in order to comply with another.
Not surprisingly, the Court answered the question in the negative, holding that one cannot 'destroy the village to save it.' It reasoned that none of the three elements of a bona fide error were present. The testimony indicated that the policy was instituted on purpose, which means the violation was not unintentional. It also indicated that the debt collector was well aware that the policy would result in a violation of the meaningful disclosure requirement, and thus the violation was not bona fide or objectively reasonable, inasmuch as it was not a mistake at all. Finally, with respect to the third requirement, procedures reasonably adapted to avoid the error, the Court relied without explanation on the trial court's finding that this element was not satisfied.
If it wasn't previously abundantly clear, it should be now: leaving automated voice messages is problematic at best. Whenever possible, upon initial debtor contact the debt collector should get authorization from the debtor to leave a message on subsequent calls if the debtor is unavailable. And absent this preauthorization (which may rarely be given), debt collectors should be very careful to leave messages at all. With respect to the challenges this presents to debt collectors, courts are almost universally in agreement: Congress provides the only appropriate forum for raising public policy arguments regarding the FDCPA, and I think consumer advocates and creditor's rights attorneys can agree- the FDCPA needs to be updated (see a recent conversation I had with Bob Lawless on his blog, Credit Slips.)
Tuesday, October 20, 2009
Tuesday, October 13, 2009
Chrysler Fraudulent Transfer Case Study Part II - Constructive Fraudulent Transfer Under the Bankruptcy Code and the Uniform Fraudulent Transfer Act
It is now time for Part II of our fraudulent transfer case study, where we discuss constructive fraudulent transfers under the Bankruptcy Code and the Uniform Fraudulent Transfer Act. This installment is being posted on our JD Supra page, as its content proves too long for a single blog post. Click here to view the article. In Part III, coming soon, we will discuss the challenges to pleading and proving a case of intentional fraudulent transfer.